Taipei, 26 April 2017: The ECCT's Low Carbon Initiative (LCI) today hosted the 2017 Europe-Taiwan Wind Energy Conference together with the Industrial Technology Research Institute (ITRI), Taiwan Academy of Banking and Finance
(TABF) and SEMI to bring together financial and industry experts in the wind industry to chart the best course forward for the wind industry in Taiwan. Among other objectives the aim of the conference was to showcase the latest technologies and services of
leading global wind energy companies, share knowledge of the Europe's wind industry investment structures and bring together wind energy developers and suppliers from Europe and Taiwan to discuss future collaboration.

To read the full report and download the speakers' slides please click [more]:

The conference began with opening remarks by Yang Wei-fuu, Vice Minister of the Ministry of Economic Affairs (MoEA); Madeleine Majorenko, Head of European Economic & Trade Office (EETO); Dr. Huang Bor-yi, TABF President and ECCT Chairman Håkan Cervell.

Opening remarks

In his opening remarks MoEA Vice Minister Yang said that in view of the government’s vision of a nuclear free homeland and getting 20% of electricity from renewables by 2025, wind energy will be a major focus of the government’s green energy policies and
efforts. Targets have been set for both onshore and offshore wind and the first offshore demonstration project was launched in October last year. This confirms the capability of local contractors. However, there is still much work to be done, particularly
in providing sufficient infrastructure. In this regard, the vice minister said the MoEA is collaborating with other ministries and making progress. He said that he was looking forward to working with foreign players on developing the wind energy industry as
it would be mutually beneficial to all stakeholders.

In his remarks ECCT Chairman Håkan Cervell began by noting that on 10 April this year Taiwan's electricity operating reserve rate hit the year's low of 3.56% as temperatures in Taipei exceeded 35 degrees. He said that Taiwan’s low electricity operating
reserve rate reminds us of two things: Firstly that going green is not just about protecting the planet. It is also about energy security. Secondly, it shows us that shifting to low carbon energy is urgent. The government has set a target to cut emissions
by 50% by 2050 and to phase out nuclear energy. In these circumstances, the only way to reach the carbon reduction goal is a large increase in renewables. The government has committed to increase renewable-based electricity generation to 20% of total generation
by 2025. But given the critically low energy reserve ratio, Taiwan cannot wait until 2025. The good news is that Taiwan is an excellent location for both solar and wind energy and the technology and skills are available.

In her remarks EETO Head Madeleine Majorenko said that cooperation on addressing climate change is an important aspect of EU-Taiwan relations and that to meet the goals of the Paris agreement, wind energy will play a vital role.

During the morning session, a “green financing” MoU was signed between the ECCT, TABF, and KfW IPEX-Bank. The MoU aims to provide wind farm project financing expertise and knowhow to Taiwanese bankers and investors as viable financing schemes funded by
banks and institutions is a crucial factor for developing large scale wind projects.

This was followed a session themed “The Future of Wind: Policies on Market Design and Financial Schemes”, which featured presentations on policies designed to promote wind energy, European wind energy case studies and financial schemes for wind energy.
The morning session concluded with an interactive panel session featuring all of the speakers, which was moderated by Joseph Wang (Ren-chain), Deputy General Director of the Green Energy and Environmental Research Laboratories at ITRI.

Most speakers have graciously offered their presentation slides. Please click the topic for the download.

Speaker: Dr Robert Hu (Yie-zu), Vice President and General Director, Green Energy andEnvironment Research Laboratories, ITRI

Dr. Hu expressed the view that the successful installation of Taiwan’s first offshore wine turbines is a good sign. Taiwan currently has 682 onshore wind turbines and a target of 1,200 for a total capacity of 1.2GW by 2025. In terms of offshore, there
have been applications for over 10 GWs of capacity but these still are subject to approval and environmental impact assessments (EIA). The offshore target has been set for 520 MW by 2020, rising to 3 GW by 2025. Besides increasing the use of renewables, authorities
also hope to develop a local wind industry in Taiwan.

While the demonstration site shows that technical difficulties can be overcome, there are still several issues to address, such as building the supply chain and grid connections and finding the right financial models. The good news is that banks have a
strong interest in getting involved.

Besides the demonstration site already mentioned, there are two other demonstration projects ongoing, which should serve to speed up the learning curve. There were originally 36 planning zones for offshore wind but after negotiations with various stakeholders,
the number was cut to 22, all of which are open to all applicants. EIA approvals are expected to happen as early as this year. The next stage is planning the wind farms. While there is potential for much more capacity than the current targets, development
will be limited initially by resource constraints, particularly the lack of harbour facilities and wind turbine installation vessels.

The current feed-in tariff (FIT) for onshore wind has been set at NT$2.8776 for 20 years. For offshore wind, there are two options: either NT$6.0437 for 20 years or a slightly higher rate for the first 10 years and a slightly lower rate for the next 10
years. Industry players have said that these rates are attractive enough for investors.

As for grid connections state-run Taiwan Power Company (Taipower) is working on establishing grid connection power problems with other parties. There has also been good cooperation with the fishing industry. According to Hu, there should soon be a standardized
formula to follow with regard to fishing interests.

In terms of infrastructure, Taichung harbour has been promised government support to build infrastructure. This should speed up development. In addition, state-owned companies are being encouraged to design and build installation vessels.

There is a lot of inter-ministry cooperation to help smooth the process. According to Hu, meetings are held once or twice a week with a view to improve processes. The MoEA has also set up a one-stop office for wind energy, which should be helpful. In summary,
there is great potential. The government is determined and Taiwan is a good partner to explore wind energy development in further in the Asia Pacific market.

From almost nothing 20 years ago, 150GW of wind energy capacity has been installed in Europe since then and now meets 10% of Europe’s energy needs and, in at least three countries, more than 25% of energy comes from wind, showing that renewables have been
successfully integrated into the grid.

3,589 turbines have already been installed offshore and a target of 5,000 and the creation of 144,000 jobs has been set by 2020. The Netherlands is one country that has reworked policy in recent years. There is agreement between industry and government
to decrease costs by 40% while the government has provided greater clarity and transparency in terms of annual targets.

Both 2015 and 2016 saw strong growth in terms of capacity. Growth in capacity was higher in 2015 but 2016 was a record year in terms of financing, which means there is a large pipeline for 2017 (4.8GW in offshore capacity). The UK is seeing the largest
increase in Europe, followed by Germany, Belgium and The Netherlands. The largest project owners are utilities. Capacity has increased because of larger turbines and wind farms. The average wind farm capacity is now 380 MW, bringing the electricity-generating
capacity of wind farms much closer to those of conventional power stations.

Given that developers need visibility, FITs help to attract investors. In this respect, the outlook is promising given that numerous institutions are getting involved in financing wind energy.

It is very important to reduce costs. 11 leading companies have signed a cost reduction declaration. Their objective is reduce costs to €80 per megawatt hour (MWh) by 2025. According to Tardieu, the signatories are confident of reaching this goal given
the fact that they have already decreased costs by around 50% and some recent bids for contracts have been below €50 per MWh. The UK industry has set a target of below £100 by 2020 and is already ahead of the target. Besides larger and more advanced turbines,
other major reasons for costs improvements are economies of scale, standardization of components, larger sites, improved procurement and good locations (those with strong winds and calm waters).

Good planning is essential and The Netherlands provides a good example in terms of administration and policies. Projects could also be more profitable than forecast given that they could last much longer than the expected lifetime of 20 years).

KfW IPEX-Bank is highly specialized in several sectors including renewables. It has financed 18 offshore wind parks in Europe for a total value of €2 billion and six parks in Taiwan with a value of €300 million. The bank created a financing structure to
optimize project debt given the fact that project revenue is in Taiwan dollars and the low appetite on the part of local banks. The same structure used for onshore can be applied to offshore projects.

An important lesson from Europe is the need for strong government support and a stable regulatory framework. In Europe there were also grid connection problems initially but this was solved by harnessing government support. Another important factor to
kick-start development in the initial stages was to have an attractive FIT.

In Germany offshore wind has come of age. Tenors are now up to 70 years and debt can now be repaid in 17 years. Given that turbines are certified for at least 20 years, banks are prepared to provide up to 75% of capital. Margins are now at around 2%.

The outlook for Taiwan is good given FITs for 20 years with the option to split into a higher tariff in the first 10 years and lower one in the next 10. This would allow banks to use structures that are front-loaded. The FIT rates are quite high compared
to recent auctions in The Netherlands and Germany but the higher price is justified given the higher costs for the first projects because turbines will have to be imported. Schäfer said that he is convinced that prices will come down in the next phase.

The cost of capital has been reduced with increased debt. Projects have to be subject only to construction and operational risk. Other details should be worked out first, such as permits, land rights, grid access. There should also be no risk of retroactively
reducing FITs. When this was done in Spain it had a devastating impact on the market that took many years to recover.

Another important factor is that the suppliers involved should have experience, especially given the technical difficulties and the large financial resources involved. Additional support is needed in the form of research on long term wind data and energy
yields.

In terms of financing, local banks are not used to extending loans for more than seven years, which is not long enough given that construction of a wind park and the necessary infrastructure can take around two years while it could take another 15 years
more or more to pay off the loans.

Things are moving in the right direction given examples of solar and onshore projects already being financed for more than seven years. Another option that could be considered is a public debt scheme.

A problem that needs to be resolved is the currency mismatch. Given that FITs are set in Taiwan dollars, debt must also be Taiwan dollars. A silver bullet would be to link FITs to the US dollar. Another other option is currency hedges but, according to
Schäfer, this is impossible in reality because 17-year hedges would be too expensive. A third option is combining local funding with international risk takers, the method used for onshore wind parks in Taiwan, although the scale would be much larger for offshore
projects. He noted that turbines account for 60-70% of the capital expenditure for onshore projects, but only 35% of offshore projects, given the complexity of setting up offshore wind parks.

Schäfer concluded that Taiwan can reach its goals. Reducing costs is crucial, including the cost of capital. He advised thinking about a public debt scheme for offshore wind to kick-start the process and to solve the currency mismatch problem.

Taiwan has good potential for offshore wind given shallow water, which makes it easier and therefore cheaper and less risky. FITs are also attractive enough for investors. Another favourable factor is the fact that Taipower, as a state-owned enterprise,
has a mandate from the government to support offshore wind development.

Issues to resolve are risk and grid infrastructure while there is also a bit of work on the legal side (public procurement agreements and provisions in the Renewable Energy Act and the Electricity Act). Besides national level regulations, local regulations
also have to be aligned while local communities need to support wind energy development. It would be helped if constitutional rights are clearly spelt out and understood by all stakeholders.

While it is the government’s goal to build a local wind energy supply chain, local content requirements have to be balanced and realistic and take into account the lack of local expertise and therefore the need for foreign expertise. This is especially
important if authorities want to expedite development. Besides wind conditions other local weather conditions need to be taken into account, including waves and how much down time should be factored in for typhoons. There is also a need for force majeure insurance
for typhoons and earthquakes (if this is possible). Authorities also need to carefully consider environmental and biodiversity issues such and fishing rights and the impact on endangered species, such as dolphins.

In terms of finances, there is a huge amount of capital available and some experience of long-term financing, for example in the port sector. There is still a question mark about insurance companies getting involvement in offshore wind. But Taiwan could
learn from the financing experience in Europe which is moving very quickly from projects being funded exclusively by utilities to many projects now being financed by commercial banks. In this regard, cooperation between Taiwanese and European banks could speed
up the process.

Panellists remarked that it is crucial to find ways to bridge the risk gap in financing wind energy projects. In order to give banks the confidence to invest it would be best if projects are managed and equipped by experienced players. One panellist noted
that there have been no defaults in wind energy projects in Europe so far because of good planning and a strong regulatory environment. Even when there were problems, strong government support helped to overcome the problem. For example, one wind park was
built but stood useless for a long time because there was no grid connection. However, the government stepped in to solve the problem. A good practice for Taiwan to follow is to guarantee grid connection and offer compensation if the connection is not provided.

One panellist suggested that turbines should come from Europe but the foundations, substations and electrical works could be made and supplied by Taiwanese companies. This is a very compelling proposition since it would create a lot of jobs in the construction,
metal and electronic sectors. Another panellist made the point that Taiwan needs the right policies in place to create jobs and that local content requirements are artificial and not sustainable.

The point was made that onshore wind should also be not forgotten given that it is already cheap, it takes very little time install turbines and there is the potential to install 10GW of capacity onshore. Moreover, onshore operators are already good at
integrating wind energy into the grid and improving storage infrastructure. To make further progress, better communication is needed with local communities.

Panellists concluded that to become a regional hub, there is need for a truly effective single contact window, a strong push forward with regard to electricity liberalization and a fair playing field for international wind energy players.

The afternoon session began with opening remarks by Dr Joseph Wang from ITRI and Bodo Kretzschmar, member of the LCI’s Steering Committee. This was followed by 10 presentations by LCI members, who shared various solutions available to speed up the development
of wind energy in Taiwan.

Most speakers have graciously offered their presentation for sharing. Feel free to download the slides by clicking the topic.

Taiwan has been identified as one of the world’s best locations for both onshore and offshore wind energy. The Taiwan government has set ambitious goals to cut carbon emissions and increase the proportion of electricity generated by renewables to 20% of
capacity by 2025. The passage of amendments to the Electricity Act in January 2017 added further impetus to the momentum. In the wake of these developments, dozens of European, multinational and Taiwanese firms are preparing to take advantage of the considerable
business opportunities that will be unleashed for all players in the wind energy supply and service chain and financial institutions backing them. All the right ingredients are in place to spur a rapid increase in wind energy development. All that is needed
is the right regulatory environment and incentives to kick-start a bright new era for renewable wind energy in Taiwan. An important aspect of this discussed at length during the conference was the best financial schemes to enable the rapid development of wind
energy.